MS/DOJ - Gateway, RealNetworks: Microsoft harmed us

After fiery opening statements and some strong words from a federal judge, the Microsoft remedy hearing got down to basics on Thursday as attorneys for the company and the litigating states worked to build support for their respective antitrust remedies.

An executive from RealNetworks Inc. questioned by a states' attorney testified that his company has been harmed by Microsoft's anticompetitive practices. Microsoft's software-licensing terms are "severe and onerous," said Dave Richards, RealNetworks' vice president of consumer systems.

He was put on the stand by the nine states and District of Columbia that did not settle with Redmond, Washington-based Microsoft to offer the point of view of a software vendor that competes with Microsoft.

The executive also said RealNetworks has been harmed by Microsoft's strict Windows licensing contracts with PC makers. For years, RealNetworks has struck deals with PC vendors to preinstall its media software as a default on the computers they deliver to end users, but since the summer of 2000 the company has been met with resistance, he said.

Hardware makers told RealNetworks they could no longer set its software as a default because of new terms in Microsoft's licensing contracts for Windows, Richards said. Windows ships with media player middleware that competes with software from RealNetworks.

This line of questioning prompted Microsoft attorney Richard Pepperman to object, claiming that the material was hearsay because Richards never actually saw the contracts between Microsoft and hardware vendors. On Wednesday, Judge Colleen Kollar-Kotelly struck from the record over a dozen paragraphs from Richards' written direct testimony that described Microsoft's contracts with PC makers, labeling it as hearsay.

On Thursday morning, however, the judge said she would allow the record to stand because the states' attorney John Schmidtlein and the witness managed to skirt the hearsay issue. Later she told attorneys for both parties that there are ways of restating or reframing testimony to avoid hearsay. "(Schmidtlein) was able to get what he wanted without ... any hearsay," she said, and recommended that lawyers for both parties strive to do so.

Turning his focus to the states' proposed remedies to Microsoft's anticompetitive behavior, Schmidtlein asked Richards if the RealNetworks software that leverages Microsoft's Internet Explorer Web browsing abilities would be harmed if the browser was removed from Windows. One of the states' proposed remedies is to force Microsoft to sell a version of Windows stripped of all middleware, including the browser. Richards answered that he is supportive of the remedy and that RealNetworks' software wouldn't suffer at all.

Schmidtlein also asked if Richards was testifying in hopes of winning RealNetworks some court protection from having to compete with Microsoft on the merits of its products. "Not at all," he answered adding that "an effective remedy would allow us to compete (with Microsoft) on merit" by addressing the company's anticompetitive behavior.

Another witness, Peter Ashkin, president of AOL brand products at AOL Time Warner Inc., testified on Thursday based on his dealings with Microsoft as Gateway Inc.'s vice president and chief technology officer from mid-1998 to 2000. Ashkin spent most of that time overseeing Windows licensing contract negotiations with Microsoft.

Responding to questions from Microsoft's counsel Pepperman, Ashkin, a witness for the states, told of how Microsoft removed Gateway from its list of approved vendors that the company purchases PCs from for internal use. In his direct testimony, Ashkin said that move was Microsoft's retaliation for Gateway's decision to use the Linux operating system on its Connected Touchpad Internet appliance. When Ashkin asked Microsoft why Gateway was crossed off the list, "I was told we were a bad partner ... we used Linux on products," Ashkin said.

The witness also testified that Gateway believed it was not getting as good a deal on its Windows license as other PC makers. Pepperman asked if Microsoft's proposed remedies -- which also constitute the settlement agreement that the company reached with the U.S. Department of Justice and nine other states -- solve that issue by requiring Microsoft to strike uniform licensing agreements. Ashkin agreed, but added that the states' proposed remedies go a step further by eliminating market-development agreements, under which Microsoft pays rebates to PC vendors.

An attorney with the states will question Ashkin as the hearing continues Thursday afternoon.

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